Here's yet another worrying indicator on the most important part of the Australian economy

Sally McLellan of Australia falls next to Evmorfia Baourda of Cyprus during the women’s 100 metre hurdle final at the athletics during day nine of the Melbourne 2006 Commonwealth Games at the Melbourne Cricket Ground on March 24, 2006. Photo: Ryan Pierse/ Getty Images.

Just two week’s away from the release of Australia’s latest GDP report, we’ve just received another worrying read on the health of household spending.

According to the National Australia Bank’s (NAB) March quarter Customer Spending Behaviour report, spending on goods and services slowed to 2.0% from a year earlier, a noticeable step-down from the 3.1% pace reported in the 12 months to December 2016.

Not a very encouraging sign on the mindset of consumers, and one that fits with recent weakness in consumer confidence surveys, particularly on the outlook for personal finances.

In order to measure spending in the economy, the NAB utilises its vast customer base, analysing around four million transactions per day to determine shifts in consumer behaviour. It also excludes spending on things such as mortgages, credit repayments and government services.

It can basically be seen as a measure on what and where spending took place over the quarter.

While the NAB only looks at its customer base, it says the patterns it sees are likely to be reflective of spending shifts across the broader Australian economy.

“Given the sheer size of NAB’s customer base, it’s reasonable to assume that their spending behaviours are representative of our country as a whole” said Alan Oster, chief economist at the NAB, following the release of the report.

Helping to bolster that view, similar analysis on spending patterns conducted by the Commonwealth Bank in its Business Sales Indicator also revealed a noticeable slowdown in spending across the economy.

Using electronic transactions processed through its merchant facilities, the CBA reported that spending on goods and services was flat in April in trend terms, decelerating further from an 0.1% increase in March.

They both measure spending on goods and services, making it a fairly good indicator on household consumption levels.

Hardly an encouraging sign on the performance of the Australian economy in the first three months of the year given its makes up around 60% of GDP.

Perhaps intensifying those concerns, the NAB said that spending also softened across most Australian states and territories, and across most spending categories.

“Customer spending slowed in all capital city metropolitan areas and regions, except Tasmania,” said Oster.

“In the capital cities, customer spending ranged from 6.2% in Hobart to -2.8% in Perth, where the post-mining slump impact on spending remains very evident.”

Combined, the survey found spending growth in metropolitan areas grew by a paltry 1.6% from a year earlier, well below the 2.9% pace reported in the final three months of 2016.

The spending slowdown in regional areas was less pronounced, slowing to 3.2% from 3.5% in the December quarter.

The following table is just plain ugly, unless you’re looking at spending growth in Tasmania.

Source: NAB

There’s a lot of down arrows, indicating a broad-based moderation in spending across the country.

Mirroring that performance, it was hardly surprising to see that spending across most categories also softened, including in the retail sector.

Another outcome that fits with weakness in the ABS’ official retail sales report, and one that perhaps helps to bolster confidence in the NAB figures.

“In the key retail trade segment, spending slowed to just 1%, with this overall subdued pace of growth also being reflected in generally weak retail trading conditions in the NAB business survey,” Oster said.

Spending on wholesale trade and transport, postal and warehousing — upstream indicators on the performance of the retail sector — also softened, or went backwards, from the levels of a quarter earlier.

Of those categories that recorded an increase, two of the three were concentrated in the finance and real estate sectors of the economy.

Again, the next table doesn’t make for pleasant viewing.

Source: NAB

Combined with recent retail sales report, consumer confidence readings and the Commonwealth Bank’s Business Sales Indicator, the NAB report is a worry, with the spending from the linchpin of the Australian economy — households — seemingly weakening.

That’s not all that surprising given relatively weak labour market conditions and record-low wage growth, a factor that is likely squeezing household disposable incomes given higher petrol costs and out-of-cycle mortgage increases since the beginning of the year.

If that is taking place — something that we won’t know for sure until the ABS releases Australia’s March quarter GDP report on June 7 — it will have negative consequences should it become entrenched.

Economic growth will almost certainly slow, leading to softer labour market conditions which will likely place further pressure on wage growth, making the task of lifting inflationary pressures all the more difficult for the RBA.

And that means that another rate cut, or more, cannot be fully ruled out yet, despite obstacles presented by strength in the Sydney and Melbourne property markets.

There’s a lot of “ifs” and “buts” right now, but we’ll soon have a clearer picture as to how the household sector is performing.

And on current indications it’s not all that great.

This map from the NAB has further details on spending patterns it witnessed over the quarter.